Talbots posts narrower-than-expected loss

By Jessica Wohl

CHICAGO (Reuters) - Talbots Inc (TLB.N) posted a narrower-than-expected second-quarter loss and gave a third-quarter outlook that beat Wall Street forecasts, signaling that the retailer's cost cuts and improved merchandising were paying off.

But Talbots' Chief Executive Trudy Sullivan cautioned on a conference call with analysts, "We are not projecting a sustainable turn in our sales trends as the economic environment remains uncertain." Talbots' shares fell 2.8 percent after rising as much as 10 percent after the results were released.

Talbots, which has been cutting staff and streamlining operations as it tries to bring back shoppers over the age of 35, said it was encouraged by customers' response to its fall merchandise.

While Talbots still expects sales to drop in the current third quarter, it said the decline should not be as steep as in the first two quarters of the year.

Second-quarter sales were mainly driven by items under $100, and novel items sold well, Talbots said.

UBS analyst Roxanne Meyer said it appeared customers were responding positively to new products, which she said looked "much better."

Talbots, which sells traditional styles to women and is majority-owned by Japan's Aeon Co Ltd (8267.T), is aiming to reduce expenses by $150 million a year. It now expects to realize $135 million in cost cuts this year, up from a prior target of $125 million.

Talbots' shares were down 21 cents to $6.90 around midday.